UK economy contracts dramatically

The UK economy contracted 2.4% in the first quarter of 2009, according to the latest figures from the Office of National Statistics (ONS).

Household spending continued to fall as consumers cut back further in an attempt to ride the recession out and avoid falling into debt. In the first quarter of 2009, household final consumption expenditure – a price index which represents consumer spending – fell by 1.7% at current prices and by 1.3% in volume terms when seasonally adjusted. This compares unfavourably with the previous quarter, the current price figure showed a fall of 1.5%, and shows a fall of 3.1% when compared with the same quarter last year.

Expenditure on goods fell by 0.9% in the first quarter of 2009. The ONS has stated that this fall was largely driven by a fall of 2.7% in ‘nondurable goods’ such as cosmetics, food, cleaning products and fuel that are used up entirely in less than a year. In contrast, expenditure on semi-durable goods increased by 2.3% this quarter, with clothing and footwear in particular showing a growth of 4.0% in the first quarter of 2009, continuing the growth shown throughout 2008.

But the generally poor economic performance has been blamed on weak output in the construction and manufacturing sectors. Commenting on the data, RICS chief economist, Simon Rubinsohn, said:

“Revised estimates of construction output contributed heavily to the downgrading of GDP in the first quarter of the year. Although the sector only accounts for around 6% of total output in the economy, the scale of the shift was sufficiently large enough to have a material impact. Previously, it was estimated that construction output had declined by 2.4% but this is now put at 6.9%. This means that sector contributed more than half (0.27% points) of the downward revision to the headline GDP number.”

“Recent surveys of the sector suggest that construction output is now falling at a lesser rate than earlier in the year. This is also evident in the April new orders data. However with development finance in such short supply, it is unlikely that construction will be making a positive contribution to the wider economy at any point over the course of this year.”